Why the Decline in Oil Prices May be Far from Over

Oil prices have fallen 15 percent in the past three weeks, and indicators have begun to signal that an end may not be coming soon.

Warnings that prices will continue to fall stem from lower US, European and Russian crude prices, which suggest less robust demand.

Benchmark oil futures have also plunged in recent days due to concerns over inflation and continued fear that rapid output from the US will flood the market.

On Wednesday (February 14), oil prices experienced a slight uptick, but as MarketWatch said at the time, analysts believed the rebound could be overdone, citing economic data and US production statistics.

The bounce was thought to be driven largely by a smaller-than-expected rise in crude inventories.

“The strong upwards movement ran somewhat counter to the more bearish looking signals from inflation and consumer retail sales data,” analysts at JBC Energy in Vienna wrote in a note.

As of Thursday (February 15), prices were down again, proving the analysts’ predictions to be true.

According to Michael Tran of RBC Capital Markets, the current problem plaguing oil prices comes down to the simple idea of supply and demand. He said, “[p]hysical markets do not lie. If regional areas of oversupply cannot find pockets of demand, prices will decline.”

Tran acknowledged that European and Russian markets are not faring much better than their North American counterparts.

He noted, “Atlantic Basin crudes are the barometer for the health of the global oil market since the region is the first to reflect looser fundamentals. Struggling North Sea physical crudes like Brent, Forties and Ekofisk suggest that barrels are having difficulty finding buyers.”

As of 2:30 p.m. EST on Friday (February 16), oil sat at $64.64 per barrel.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.